American Eagle Outfitters (AEO)

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Shawn Woodhull

Jason Mercer

Hongliang Zhang

American Eagle (NYSE: AEO) is a mall-based apparel and accessories retailer that sells its own brands of products throughout the U.S. and Canada. AEO operates two different chains (American Eagle Outfitters and aerie) that target 15 - 25 year old customers. Its original third operation (Martin + OSA) was shut down in FY2010.^[1] The overwhelming majority of AEO's sales come from its namesake American Eagle operations.

In order to enter new markets, AEO has also entered into a partnership with an international retail operator to open stores in the Middle East. This decision has the added benefit of reducing the effects of U.S. economic cycles on AEO's bottom line. However, recent rising commodity prices have negatively affected AEO's costs.

Company Overview

American Eagle sells its own brands of clothing and accessories in mall-based retail stores in the U.S. and Canada. AEO currently sells clothing under two brand names: its American Eagle flagship store (which targets 15 - 25 year old men and women) and its Aerie stores (which sells intimates and personal care products to 15 - 25 year old women).

Business Segments

• Men's apparel and accessories - 40% of 2010 net sales
• Women's apparel and accessories (excluding aerie) - 51% of 2010 net sales
• aerie - 9% of 2010 net sales

^[1]

Company Growth

Fiscal 2010 (ended on January 29, 2011)

• Net sales increased 1% to $2.97 billion.
• Net income decreased 16.8% to $140.6 million.^[2]

Competition

AEO competes with several other retailers in the 14-30 year old apparel market. AEO has consistently been at the top of its sector in terms of profitability and is one of the largest companies in the market in terms of net sales. AEO's 21.0%^[3] operating margin is the highest out of all of its competitors, even considering that its 48.0% gross margin rate is considerably lower than the 66.6% gross margin rate of AEO's main competitor, ANF.

Competitors include:

• Abercrombie & Fitch Company (ANF): ANF is a larger company than AEO, with a greater store base and higher net sales than AEO. Abercrombie & Fitch Company (ANF) also operates three brands: Abercrombie & Fitch, Hollister, and abercrombie; all of which target different subsets of the 8 - 30 age range. While AEO's namesake stores compete directly with A&F and Hollister stores, AEO has no match for A&F's kids apparel concept: abercrombie. Although ANF is one of AEO's most direct competitors, the two company's operate with different strategies: Abercrombie maintains a premium brand with high price points while American Eagle attempts to reach a larger range of customers with relatively lower price points on trendy products.

• Aeropostale (ARO): ARO is a smaller company than AEO, with the overwhelming majority of revenue coming from only its namesake brand of stores that targets 14 - 17 year olds. Aeropostale's business model also relies heavily on sales and promotions, something that AEO is trying to move away from in order to keep margins high.

• Pacific Sunwear of California (PSUN): Pacific Sunwear primarily serves several different customer segments through its three retail chains: PacSun, demo, and One Thousand Steps. PacSun stores are based mostly around trends in the alternative sports (surfing, snowboarding, skateboarding, etc.) lifestyle and offer third-party branded as well as private label apparel, footwear and accessories to teenagers and young adults.^[4] Finally, demo stores target 16 to 24 year olds with fashion and accessories influenced by hip-hop lifestyle and One Thousand Steps offer a wide range of casual footwear to the 18 to 24 year old customer segment.^[5]

• Urban Outfitters (URBN): Urban Outfitters is a relatively young retailer that operates three different branded store chains, Urban Outfitters (18 to 30 year olds), Anthropologie (30 to 45 year old women), and Free People (16 to 35 year old women).^[6] Urban Outfitters is not as directly comparable to AEO due to its slight differentiation in targeted customer segments.

• Gap (GPS): Gap is a much larger company than AEO in terms of sales, stores and customer segments targeted. Through variations on Gap (Gap Kids, babyGap, Gap Maternity) the retailer serves a wide range of customers; also, Banana Republic and Old Navy stores serve different socio-economic segments.^[7] Because of the wider range of customers, Gap doesn't match up with AEO as closely as some other competitors, however there is considerable overlap.

^{[8] [9] [10] [11] [12] [13]}

References

1. ↑ ^{1.0 1.1} AEO 2009 10k
2. ↑ http://phx.corporate-ir.net/phoenix.zhtml?c=81256&p=irol-newsArticle&ID=1537511&highlight=
3. ↑
4. ↑ Pacific Sunwear of California (PSUN) Corporate Website
5. ↑ Pacific Sunwear of California (PSUN) Corporate Website
6. ↑ Urban Outfitters (URBN) Corporate Website
7. ↑ Gap (GPS) Annual Report 2006
8. ↑ Abercrombie and Fitch Annual Report 2009
9. ↑ Urban Outfitter Annual Report 2009
10. ↑ Pacific Sun Annual Report 2009
11. ↑ Aeropostale Annual Report 2009
12. ↑ American Eagle Outfitters Annual Report 2009
13. ↑ Gap Annual Report 2009